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Oregon Court Holds That Internet Access Services Are Not Telecommunications, Are Protected by the Internet Tax Freedom Act

In City of Eugene v. Comcast of Oregon II, Inc., Case No. 16-08-03280, the Oregon Circuit Court reversed its earlier ruling that the City of Eugene’s registration and license fees imposed on cable Internet access services are preempted by the

September 20, 2010

In City of Eugene v. Comcast of Oregon II, Inc., Case No. 16-08-03280, the Oregon Circuit Court reversed its earlier ruling that the City of Eugene’s registration and license fees imposed on cable Internet access services are preempted by the Internet Tax Freedom Act (ITFA), and that the fees violated the Uniformity Clause of the Oregon Constitution.

This case arose when the City of Eugene filed an action to collect a registration fee and license fee imposed under City Ordinance 20083 from a cable Internet access provider. The registration fee requires each entity engaging in telecommunications activities to register and pay a 2% annual fee on gross revenues derived from providing telecommunications services within the City’s public rights of way. The license fee requires each entity using the City’s right-of-way to provide telecommunications services to pay a license fee of 7% of its gross revenues derived from providing telecommunications services in the city. In an earlier ruling, the Court found that cable modem services (Internet access services delivered using a cable modem) were subject to both the registration fee and the license fee. Upon reconsideration, the Court determined cable modem service was not a telecommunications service under the Ordinance.

The Court also held that the registration fee is a discriminatory tax on electronic commerce under ITFA. ITFA prohibits states and municipalities from imposing a tax on Internet access unless the tax was “generally imposed and actually enforced prior to October 1, 1998.” The City claimed it met an exception to ITFA, commonly referred to as the Grandfather Clause. The Court found that the City bore the burden to prove it meets the exception and establish that it “generally imposed and actually enforced” the tax prior to October 1, 1998. The City did not present sufficient evidence to establish that the tax was generally collected from the appropriate class of registrants prior to October 1, 1998.

The Court found the City violated Article 1, section 32 of the Oregon Constitution, which requires that “all taxation shall be uniform on the same class of subjects within the territorial limits of the authority levying the tax.” The Court ruled that the City’s attempt to exact a fee only from the defendant and not from similarly situated providers of Internet access service within its class was a violation of Oregon’s uniformity clause. The City’s subsequent attempts to enforce the Ordinance on other providers of Internet access service did not cure the constitutional defect.

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